Investing in mutual funds is an excellent way to build wealth and achieve your financial goals. However, amidst the excitement of growing your assets, it is crucial not to overlook one essential aspect – Mutual Fund Nomination. It is the process through which you can add your family member’s name as a beneficiary who will receive your investment in case of your unexpected demise. It helps in providing financial security for your loved ones.
In this blog, we will discuss mutual fund nominations, their benefits, their importance, and how to add nominees to your mutual fund portfolio.
Mutual Fund nomination refers to appointing a person to take charge of your fund investments after your death. Appointing a nominee ensures that after your death, your Mutual Fund holdings will be transferred to your nominee. This process of transfer of Mutual Fund units of a deceased investor to a nominee is also known as the transmission of units.
The nomination facility is available to single as well as joint unitholders. Moreover, a nominee can be a family member like your spouse or child, an NRI, or even a friend or acquaintance. You can also appoint a minor as the nominee or select a local authority, the central government, a charitable organization, or a person designated by virtue of their office. But bear in mind that a company or body corporate, partnership firm, Hindu Undivided Family (HUF), society, or a non-religious or non-charitable trust cannot be appointed as nominees. However, it is advised only to appoint a trustworthy person as your mutual fund nominee.
Now that you know what a nominee is and who can be a nominee in mutual funds, you must also know how to add one.
Adding nominees in mutual funds is a critical task due to multiple reasons. Here are some common reasons:
Last Date to Update
As per a SEBI circular dated June 15, 2022, all existing mutual fund investors must update the nomination details or opt out of the nomination. The last date to update the nomination or opt-out of nomination is March 31, 2023.
In the absence of compliance, your folios will be frozen, and you will not be able to redeem your investments.
Usually, the nominee can be assigned at the time of purchase. You can simply add the name and personal details of the person you want to appoint on the application form in the separate section allocated for the Nomination facility. If you want to appoint a nominee to an existing investment, you can request the asset management company for a nomination form. To add a nominee for your Mutual Fund investments, you can use the common nomination form for mutual funds provided by the AMCs. Key details that you need to provide in the nomination form are:
You can add up to 3 nominees in one mutual fund folio and specify the percentage share that each nominee will receive in the event of your death. If you do not specify the percentage share, your Mutual Fund units will be equally distributed among all the nominees mentioned in the nomination form.
Understanding who can nominate and who can be a nominee is essential for you to ensure a seamless transfer of assets to your beneficiaries. Let’s start with, Who can nominate?
If you are applying for or holding mutual fund units on your own behalf, either singly or jointly, you are eligible to make a nomination. However, if you are holding POA (Power of attorney) or you are a guardian investing on behalf of a minor, then you are not eligible to make nominations.
Now, who can be a nominee?
You can nominate any person of your choice, including a minor, for your mutual fund investments. But in the case of minors, you must also provide the guardian’s name and address.
Even non-resident Indians (NRIs) can also be added as mutual fund nominees, subject to the prevailing exchange control rules.
Furthermore, you can also make nominations in favour of the Central Government, State Government, a local authority, any person designated by virtue of his/her office, or a religious or charitable trust.
You can not add trust (except for religious or charitable trusts), society, company/body corporate, partnership firm, or HUF (Hindu Undivided Family) as a nominee.
You may want to change the nominee of your mutual fund as per your changing personal situations and financial responsibilities. Mutual funds allow you to change the nominee of your Mutual Fund anytime you want using the mutual fund nominee change form. You can also simply remove existing nominees.
For instance, consider a scenario where Aditi nominated her husband and two children as equal nominees on her mutual fund folio. However, five years later, she filed for divorced and removed her husband’s name from the list of nominees. As a consequence, her units are now equally distributed between her two children.
You can check the nominee of your mutual fund online or request the details from the concerned AMC. We recommend revisiting your nominations after every major life event, such as marriage, divorce, loss of a loved one, etc. As overwhelming as some of these incidents can be, it is essential to keep your nominees up to date, so they reflect your current preferences at all times.
Nomination in mutual funds can have many advantages, such as:
Here are some things that you must know of when adding a nominee to your mutual fund folio:
It is important to appoint a nominee to ensure that your investments are passed on to the right person. However, as life gets busy, many of us forget to nominate a person. Sometimes, we may procrastinate updating the nominee. Other times, the appointed nominee may pass away unexpectedly and you might wonder how to claim Mutual Fund units after the death of the investor. In such circumstances, your legal heir can claim your assets. However, the AMC will transfer the units after reviewing the following documents:
If you do not have a legal heir or any other person mentioned in the will, a relative may claim the assets. In such a case, the claimant has to fill and submit form T3, also known as the Transmission Request Form. The claimant also needs to submit a set of documents depending on the amount to be claimed. You can check the same with the fund house.
Mutual fund nomination just like a will document is an essential part of estate and succession planning. Hence, it should not be ignored. If you have invested in mutual funds or plan to do so in the future, make sure to add nominees.
Written By Sridhar SahuSridhar Kumar Sahu is a Content Writer for ET Money. He has over six years of experience in covering personal finance topics and markets. He holds a Master’s degree in English Journalism from IIMC, New Delhi and B.Tech in Mechanical Engineering from BPUT, Odisha.
